Identify strengths, weaknesses, and opportunities for your company

A budget is a key component of building a strong foundation for your business. You can leverage your budget to identify your company's strengths, weaknesses, opportunities, and potential concerns. With an accurate, well-maintained budget, you see where money comes from and how it's spent. It's also crucial when seeking out a business loan and understanding if your company is in a good position to lease or finance heavy equipment.

Despite the long list of benefits, not every company has one, nor do all organizations with a budget update it regularly. Let's look at why you should create and maintain a budget with accurate figures, as well as some practical advice for building this vital tool.

How to create and maintain your business budget?

How will you choose to build your budget? The answer to this question informs nearly everything that comes afterward. Consider these two common options:

• A basic budget developed in a spreadsheet: When you create your own budget in a basic tool like a spreadsheet, you have total control over the process. Everything from font choice and the size of each spreadsheet cell to the formulas used to calculate totals and subtotals is tailored to your preferences. You also know you have total control of the information it contains and won't need to purchase software, pay for updates or deal with similar costs. The downsides are the extra work that go into constructing the spreadsheet, the need to understand basic spreadsheet functions to create an accurate budget and the potential for human error that may not be immediately obvious when you review your work.
• A budget built in specialized software: A wide range of purpose-built programs for creating budgets is also available. From easily recognized industry leaders like Quicken® to many others competing to provide this service, you have plenty of options to consider. The benefits of using software include the support it offers as you create and update your budget, from providing direction through the user interface to automating calculations and, in some cases, offering reminders about updating the budget. Downsides include the additional cost that comes with buying the software, the potential need to pay for a subscription or updates, and possible roadblocks in terms of exporting budget information if the time comes to switch to a different software or platform. Once you make this decision, you'll have a much better idea of what to focus on. If you build your own budget, consider this guidance for getting started in Microsoft Excel from The Finance Genie or using a pre-existing template on a web-based provider, like Google Sheets. If you plan to use purpose-built software, take the time to look up reviews of different programs, such as this list of top performers from PC Magazine.

Advice that makes your budget more effective

On the most basic level, a budget records income and expenses. This insight is valuable because it allows you to make changes to your operations that reduce cost and risk and create the potential for improving revenue and profit, but there are certain considerations that make your budget more accurate, and therefore more insightful and useful.

Update your budget regularly

Keeping your budget up-to-date is extremely valuable to a business as it can give you visibility into the financial state of your company. The U.S. Small Business Administration recommended following a monthly schedule when updating. Maintaining your budget regularly allows you and anyone else involved in making major business decisions to understand recent financial performance and make informed decisions to capitalize on positive trends and minimize negative ones.

You can also plan for future contingencies by adjusting various line items within your budget. Perhaps you want to see what your income would look like if you had to prepare for a major project, taking both the increased income and expenses in terms of additional work hours, equipment, insurance and other potential needs into account. Maybe you plan to hire additional staff or lease a new piece of heavy equipment, and want to see what your expenses would look like going forward with no other changes. You'll only get accurate results if you maintain an updated budget.

Utilize your budget as a money-saving tool

Expenses are generally smaller individually and much more numerous in total than sources of income. Investopedia suggested a careful review that can lead to cost-cutting opportunities, especially when money is tight. Perhaps you can cut down on non-essential purchasing, find a new vendor for a product or service, or plan to lease or finance your next piece of heavy equipment instead of purchasing it outright. Remember, it's easier to identify high costs and create a plan to address them when you have current, accurate numbers in front of you.

Plan ahead for major purchases and leases

Whether you have to increase purchasing of raw materials or need to add a piece of equipment to your current pool, your budget gives you a guide that tells you how much room you have to add a large lump sum or recurring monthly cost. In the case of heavy equipment specifically, many smaller businesses find it difficult, if not impossible, to pay the substantial amount necessary for a piece of equipment up front. While you can consider increasing the amount of income you keep as savings for a new loader or excavator well before you need it, it can still be difficult to set enough money aside to make that purchase in a reasonable timeframe. Cat Financial offers a variety of equipment leasing and financing solutions that feature competitive rates and reasonable, easily understandable terms and conditions. As a small-business owner, you need to have the right equipment on the job without breaking the bank. When you partner with Cat Financial, you can count on regular monthly payments that are easy to incorporate into your budget, as well as all the benefits of Caterpillar® heavy equipment. To learn more, get in touch with us today!